Last updated: March 27, 2013 3:32 pm

Malaysia PM faces test as tight poll looms

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Dato' Sri Haji Mohammad Najib bin Tun Haji Abdul Razak, Prime Minister of Malaysia poses for a photo in his office in Putrajaya, Selangor, Malaysia.©Panos

Malaysian Prime Minister Najib Razak looks out through the window in his spacious office in the administrative capital of Putrajaya, and points to the foreign ministry on a nearby hill.

“They cheated the prime minister and occupied the highest spot,” he jokes, in a reference to the 1990s when Malaysia moved its government from Kuala Lumpur.

Now, as election fever rises in the multi-ethnic southeast Asian country of 28m, Mr Najib and his long-dominant United Malays National Organisation (Umno) could be upstaged by a far bigger force: the opposition Pakatan Rakyat coalition, which hopes to seize power in the most contested poll in the nation’s history.

Since the era of Mahathir Mohamad, who led the country as prime minister from 1981 to 2003, Malaysia has been governed by Umno. The party and its coalition partners have enjoyed thumping parliamentary majorities since independence from Britain in 1957.

Mr Najib is expected to call an election within days. Meanwhile, the opposition, led by Mr Mahathir’s former deputy Anwar Ibrahim, believes it has its best ever chance of victory.

At the last election in 2008, Pakatan Rakyat robbed Umno and its partners in the governing Barisan Nasional coalition of a two-thirds majority in parliament.

The shock result prompted Umno to replace the incumbent prime minister with Mr Najib, a 59-year-old economist and son of a former Malaysian premier.

Such is the uncertainty over the outcome of this election that even the prospect of a slim win by the ruling Barisan Nasional is unnerving investors. Malaysia’s stock market has been one of the worst performers in Asia this year.

At stake is the future of a moderate Muslim country and US ally, which has been a linchpin of political unity in the Association of Southeast Asian Nations as China’s regional clout has grown.

Most political analysts agree that Barisan Nasional stands little chance of regaining its two-thirds majority in parliament, but Mr Najib dismisses that in an interview, delayed by a few minutes as he completes afternoon prayers.

“I’m cautiously optimistic that we’ll have a good victory. Two-thirds is achievable but I also realise that in an election anything can happen, so that’s why I say I am cautiously optimistic,” he says. “Investors are looking for a strong mandate for the current government. If we should, or rather when we get a good result, you will see an unprecedented boom in the stock market. I’m quite confident of that.”

I think it is too risky to put faith in a coalition that does not have a clear sense of direction that they want to take the country in

- Najib Razak

Judging by the economic numbers, Mr Najib – a former finance minister and avuncular technocrat – has the advantage of incumbency. He has presided over an economic performance last year that the International Monetary Fund said “surpassed expectations”. The economy grew 5.6 per cent, driven by domestic demand and buoyant exports of commodities such as gas and palm oil.

The country has also been aided by an “economic transformation programme” (ETP) that the government launched in 2010 to double per capita income to $15,000 by 2020. That has seen billions of dollars pumped into projects in oil and gas and infrastructure, including in Iskandar, a vast industrial zone across the strait from Singapore.

External confidence in Mr Najib’s reforms has seen foreign holdings of Malaysian government bonds jump 550 per cent to M$215bn (US$69bn) since 2009, according to HSBC.

Mr Najib is also likely to get a small bounce from nationalist-minded voters after a military campaign to root out Filipino insurgents who recently invaded Sabah, on the Malaysian portion of the island of Borneo.

Yet there are concerns over the pace of reform should Barisan Nasional lose, or scrape a win as most analysts see as more likely. Malaysia has a debt to GDP ratio of 51 per cent – one of the highest in Asia – and government revenues are weak.

Economists have urged the introduction of a general sales tax. Asked if he would do so, Mr Najib says: “I will look at the tax structure, definitely, because we need to enhance the revenue base . . . The government revenue base has to be predicated on a much stronger footing.”

The prime minister takes issue with the Pakatan Rakyat coalition’s economic proposals, which include raising the minimum wage, abolishing monopolies in telecommunications and rice, and removing excise duty on vehicles.

“I think it is too risky to put faith in a coalition that does not have a clear sense of direction that they want to take the country in,” he says.

Mr Najib argues that the opposition’s manifesto would send Malaysia’s current account into deficit within a year.

Critics of the ETP have also questioned how much of the government spending – which the government puts at M$211bn so far in 149 projects – has trickled through to the real economy by generating private investment as well.

However Mr Najib says: “It’s definitely enhanced private investment including foreign direct investment. The important thing is the trajectory. People don’t expect everything to shift overnight. And I believe if you look at the big macro numbers they all show we are moving in the right direction.”

Yet Umno is vulnerable on corruption – a key weapon in the opposition’s campaign. Allegations of bribes to secure government contracts are rife, while Transparency International’s country rankings for last year revealed no significant fall in corruption levels for Malaysia.

The issue was thrown into sharp relief this month after allegations by Global Witness, a campaign group, of kickbacks in land deals in the state of Sarawak involving the chief minister, who has dismissed the allegations.

Mr Najib declines to address the case, pointing out that the corruption commission is investigating. He insists the government is “equally concerned about corruption” as its critics.

“Prostitution and corruption are two things that mankind has had to live with for so long. But we are determined to tackle it. It is a scourge. But it is something that will not go away overnight,” he says.

Should the coalition eke out only a narrow win, Mr Najib – who routinely polls more favourably than Barisan – could be vulnerable to a leadership challenge. That could see him replaced by his deputy, Muhyiddin Yassin, a conservative Malay whose reformist credentials are untested. Mr Najib took a calculated risk last year by extending his reformist zeal to his own party, changing Umno’s constitution to make it easier to challenge the leadership.

“I’ve made Umno more democratic, more inclusive. Of course by doing that I’m putting myself at risk. But I believe that what were doing is good for the country and good for the party.”

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